Our Inflated Reopening Is Just Getting Started

Our Inflated Reopening Is Just Getting Started

The Russian reversion trade investors got earlier this week is an exception to the rule of the recent market regime, which is here to stay. Let's call that regime the Inflated Reopening: Covid cases going down, economic data meeting healthy expectations, and enough inflation to force the Federal Reserve into a tightrope tightening policy. Inflated Reopening is characterized by a strong dollar, rising Treasury yields and energy prices, and weakness in growth stocks; the first few days of market action this week were quite opposite. It won't last. Not because of any particular view on how the Ukraine situation plays out, but because the underlying fundamental catalysts for Inflated Reopening are getting stronger by the day. Consumer inflation is generally more important than producer prices, but Tuesday's producer price index was scalding. The monthly increase was twice as big as economists expected, and those same analysts have been very accurate in gauging just about all other economic data this year (see the Citi Economic Surprise Index near zero, compared to the Inflation Surprise Index running hot). Yet they're not even close on getting inflation right and are specifically building a record of underestimating month-over-month numbers, which are crucial at this